Wednesday, May 16, 2012

I just wanted to make everyone aware that this Saturday, there are two events at the NTEC in Frisco. I will be speaking in the first, and moderating the panel in the second. My understanding is both are open to the public at large, but you need to register on Eventbrite.

A Bunch of Short Guys
10-noon
The Business of Animation
Panel discussion with local experts in entertainment law, freelance and contract employment, taxes, tips and tricks:

As the Zynga empire has shown, free-to-play online games have become an incredibly lucrative part of the industry. Free-to-play allows anyone to take part without paying a dime, but the games become profitable by inserting advertising and by offering features that will cost you. This could be extra levels, special items, or skipping ahead to later stages. Is calling a game “free" but then later charging fees a deceptive practice? Is it legal, and more fundamentally, is it ethical?

Deceptive trade practices are an important branch of business law. Federal and state law control what qualifies as deceptive practice, and many states have been influenced by the Uniform Deceptive Trade Practices Act. A lot of the doctrines deal with trademark law, a topic we recently covered with respect to Joustin’ Beaver. Pretending that a good is made by a company when it is not is a deceptive practice. So is selling something as new if it is used, disparaging the goods of another by misrepresenting facts, advertising things you do not intend to sell, and so on. Deceptive practices set basic standards of honesty between businesses and consumers. These rules, generally, are at the state law level, and accordingly do vary from state to state. What follows is a general discussion without any particular state’s viewpoint guiding.

Most of those concepts come into play when advertising a product, but there are additional deceptive practices that govern how businesses can behave in their ongoing relationships with customers. This would likely be the area of the law relevant to free-to-play games. It prohibits unfair adhesion contracts, which is when a “take it or leave it" agreement exists between parties with unequal bargaining power. For it to be considered unfair, courts look to whether the terms are outside reasonable expectations, whether the less powerful party would know a term was there, or if the contract is unconscionable or oppressive.

An outgrowth of this concept is the shrink wrap-contract, which directly applies to buyers and sellers of software, like games. The terminology comes from the fact that you cannot see the terms without opening the product. In the case of downloads or websites, web-wrap, click-wrap, and browse-wrap terms only appear when you use the program. There is no nationally controlling decision on the subject. Some major cases like ProCD v. Zeidenberg suggest that these types of contracts are perfectly legal, while others such as Specht v. Netscape found them invalid. Of course, any decision is specific to the facts of the case, so a court would consider an agreement by analyzing it for reasonableness and unconscionability, just like adhesion contracts. Unless a company misled players into believing nothing in the game was ever going to cost money, it seems like free-to-play games with monetized aspects are fine under these principles.

Some countries are extremely concerned about the addictive nature of gaming and have regulated it accordingly. Ars Technica noted that Japan is set to restrict certain practices that prey on compulsive behavior. The new regulations would deal with games that offer random items for a price. Japan’s Consumer Affairs Agency has received complaints after some customers burned through enormous amounts of money while attempting to complete rare sets of digital items. Even though some social gaming companies already voluntarily capped the amount children could spend, authorities have argued the practice violates Japan’s lottery laws.

But as we noted previously, the US is a different story. Japan may be tightening the screws on social games with aspects that resemble gambling, but the Justice Department’s new interpretation of the Wire Act points in the opposite direction. As long as the wager is on the game itself and not some outside activity, the American government seems willing to tolerate it. If a game company does not make promises it cannot keep or step outside of reasonable behavior, they are legally safe building costs into a free-to-play game.

Of course, legal and ethical principles do not always overlap. As free-to-play has boomed, many have wondered whether it is right. When people go overboard and dedicate too much money and time to any game, it makes us uncomfortable. People can become addicted to anything, and games are not an exception. Free-to-play is ripe for criticism because the costs are not immediately apparent.

With other games, the sticker price is immediately obvious. (Some companies have also been criticized by making additional features available only after spending more money, but that is only getting more popular.) With free-to-play, a gamer could end up spending as much or more than they would on your average console title. Some developers are opposed to this because they consider it misleading, while others have it built into their business model. There is no widespread agreement on how to handle this, and gamers will set the industry standard by voting with their wallets.

A challenge with resolving this question is that it raises a larger point about the ethics of sales. Producers of anything from food to video games face a very competitive market. There are a myriad of options and it is a battle to get noticed. One of the most effective ways to court customers and establish an audience is to give them a complimentary taste. That is the logic behind the free samples in the grocery store, or the coupons offering deep discounts for new items. It also underpins the tried and true technique of the game demo that is offered shortly before the full release. You let someone give your product a try, decide if they like it, and hopefully they choose to pay for it.

Free-to-play operates the same way. The developer provides a base version that introduces you to the engine, allows you to have some fun, and then they make their money once you are hooked. Some believe that because games are ripe for compulsive behavior, they must be regulated. But that is a slippery slope. People can have an unhealthy relationship with food: does that make dropping the price on a new kind of chip unethical? If we started down this road, we might never stop. But it is also possible that the way we perceive games will evolve, and we will shift closer to Japan’s approach. As free-to-play’s market share expands, so does the chance for regulatory scrutiny.

As a gamer, you have influence on how this plays out. If you dislike free-to-play, then do not download the games. Governments might choose to respond, but the market will always be more nimble. As long as free-to-play is a cash cow, it is going nowhere.

Zack Bastian is an official contributor to Law of the Game. A third year student at George Washington University Law, Zack works at the Woodrow Wilson Center's Science and Technology Innovation Program and is a member of the American Intellectual Property Law Association. The opinions expressed in his columns are his own. Reach him at: zack[dawt]bastian[aat]gmail[dawt]com.

Editor in Chief

Mark Methenitis is an attorney in Dallas Texas. Mark received his Juris Doctorate and his Master of Business Administration from Texas Tech University and his Bachelor of Arts from The University of Texas.

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